8-K

________________________________________________________________________________________________________________________________________________

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 8-K

__________________________

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): February 10, 2021

__________________________

RealNetworks, Inc.

(Exact name of registrant as specified in its charter)

__________________________

WASHINGTON	001-37745	91-1628146
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1501 First Avenue South, Suite 600

Seattle, Washington 98134

(Address of principal executive offices) (Zip code)

(206) 674-2700

Registrant’s telephone number, including area code

Not Applicable

(Former name or former address if changed since last report)

__________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol (s)	Name of Each Exchange on Which Registered
Common Stock, Par Value $0.001 per share Preferred Share Purchase Rights	RNWK RNWK	The NASDAQ Stock Market The NASDAQ Stock Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

____________________________________________________________________________________________________________

Item 2.02.     Results of Operations and Financial Condition.

On February 10, 2021, RealNetworks, Inc. announced its financial results for the fourth quarter and full year ended December 31, 2020. The full text of the press release is furnished as Exhibit 99.1 hereto.

Furnished as Exhibit 99.2 hereto is additional information regarding non-GAAP financial measures included in certain public disclosures of RealNetworks, including its fourth quarter and full year 2020 financial results press release.

The information set forth in this Item 2.02 shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

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Item  9.01.    Financial Statements and Exhibits.

(d) Exhibits.

Pursuant to the rules and regulations of the SEC, the attached exhibits are deemed to have been furnished to, but not filed with, the SEC.

Exhibit No.	Description
99.1	Earnings Release of RealNetworks, Inc. dated February 10, 2021
99.2	Information Regarding Non-GAAP Financial Measures

3

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 8-K Report to be signed on its behalf by the undersigned hereunto duly authorized.

REALNETWORKS, INC.
By:	/ S /    Judd Lee
	Judd Lee
	Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

Dated: February 10, 2021

4

EX-99.1

Exhibit 99.1

REALNETWORKS ANNOUNCES FOURTH QUARTER AND FULL YEAR 2020 FINANCIAL RESULTS

SEATTLE — February 10, 2021 -

RealNetworks, Inc. (Nasdaq: RNWK), a leader in AI-powered digital media software and services, today announced its financial results* for the fourth quarter and full year ended December 31, 2020.

•2020 revenue from continuing operations of $68.1 million, up 3% year-over-year due to aggregate growth of over 110% from two key growth initiatives (free-to-play mobile Games and SAFR), offset by declines in legacy businesses

•2020 net loss from continuing operations of $(5.1) million, an improvement of $10.1 million compared to 2019; 2020 adjusted EBITDA loss of $(8.6) million, an improvement of $11.4 million compared to 2019

•Continued traction with SAFR driven by successes in the U.S. Federal market and in Japan and Korea

•Completed the sale of Napster to MelodyVR for total consideration of $26.6 million and buyer's assumption of approximately $44.0 million in payment obligations

•Ended the year with $23.9 million in unrestricted cash and cash equivalents, up from $8.5 million on December 31, 2019

Management Commentary

“2020 was a year of strong achievements for RealNetworks in spite of the challenges associated with the Global Pandemic that had a huge impact on businesses and people around the globe,” said Rob Glaser, Founder, Chairman, and Chief Executive Officer of RealNetworks. “Revenue from two of our key growth initiatives – free-to-play mobile Games and SAFR – grew over 110% from 2019. We are also pleased to have completed the sale of Napster to MelodyVR. We believe the sale of Napster simplifies Real and will help us deepen our focus on our growth initiatives and create long-term shareholder value.”

Full Year 2020 Financial Highlights from Continuing Operations

•Revenue was $68.1 million, up 3% compared to $65.8 million in 2019.

•Revenue from key growth initiatives, free-to-play mobile Games and SAFR, increased over 110% from 2019.

•Games revenue was $28.6 million, up 12% compared to $25.5 million in 2019.

•Gross profit margin was 76%, up from 74% in 2019.

•Operating expenses decreased $19.0 million, or 25%, from 2019. Normalizing for certain one-time and non-cash items, operating expenses decreased $10.0 million, or 14%, from 2019.

•Net loss attributable to RealNetworks was $(4.8) million, or $(0.13) per diluted share, compared to a net loss of $(15.1) million, or $(0.40) per diluted share in 2019. Included in net loss attributable to RealNetworks in 2020 was a gain of $8.6 million and in 2019 was a gain of $12.3 million related to the transaction involving the Company's interest in Napster.

•Adjusted EBITDA was a loss of $(8.6) million compared to a loss of $(19.9) million in 2019. A reconciliation of GAAP net income (loss) including noncontrolling interests to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release.

•At December 31, 2020, the Company had $23.9 million in unrestricted cash and cash equivalents compared to $13.2 million at September 30, 2020 and $8.5 million at December 31, 2019.

Fourth Quarter 2020 Financial Highlights from Continuing Operations

•Revenue was $17.6 million, up 6% compared to $16.6 million in the prior quarter and up 2% compared to $17.3 million in the prior year period.

•Games revenue was $6.9 million, down 10% compared to $7.6 million in the prior quarter and up 5% compared to $6.6 million in the prior year period.

•Gross profit margin was 77%, up from 75% in the prior quarter and up from 76% in the prior year period.

•Operating expenses decreased $7.2 million, or 47%, from the prior quarter and decreased $9.3 million, or 53%, from the prior year period. Normalizing for certain one-time and non-cash items, operating expenses were relatively flat with the prior quarter and decreased $1.7 million, or 10%, from the prior year period.

•Net income attributable to RealNetworks was $6.1 million, or $0.16 per diluted share, compared to a net loss of $(3.2) million, or $(0.08) per diluted share, in the prior quarter and a net loss of $(4.5) million, or $(0.12) per diluted share, in the prior year period. Included in net loss attributable to RealNetworks in the fourth quarter of 2020 was a gain of $8.4 million related to the transaction involving the Company's interest in Napster.

•Adjusted EBITDA was a loss of $(0.9) million compared to a loss of $(1.9) million in the prior quarter and a loss of $(2.9) million in the prior year period.

Corporate Developments

•On December 30, 2020, the Company announced the completion of the sale of Napster to MelodyVR for a total transaction value of approximately $70.6 million valued at the closing date, comprising $15.0 million in cash, $11.6 million in MelodyVR stock, and assumption by MelodyVR of approximately $44.0 million in payment obligations, primarily to various music industry entities. The Company received $10.6 million in MelodyVR stock and $6.7 million in cash as debt repayment and liquidation preference plus $3.0 million of cash to be held in an 18-month indemnity escrow. The Company expects to provide $4.8 million of consideration (equity and/or cash) to a third party to fulfill the terms of a January 2019 agreement to acquire its stake in Napster.

•Effective March 1, 2021, Christine Chambers will be appointed to the position of Senior Vice President, Chief Financial Officer and Treasurer. Ms. Chambers will be rejoining RealNetworks, having served the Company in various finance roles for nearly a decade, most recently as Vice President, Finance. Ms. Chambers will report to President and COO Mike Ensing. Ms. Chambers succeeds Judd Lee, who will be transitioning out of the Company in March.

Business Outlook

As has been the case over the past year, RealNetworks is not providing guidance for the first quarter ending March 31, 2021.

Conference Call and Webcast Information

RealNetworks will host a conference call today to review its results and discuss its performance at approximately 4:30 p.m. ET / 1:30 p.m. PT. Participants may join the conference call by dialing 1-877-451-6152 (United States) or 1-201-389-0879 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on Wednesday, March 3, 2021, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13714971.

A live webcast will be available on RealNetworks’ Investor Relations site under the Events & Presentations section at http://investor.realnetworks.com and will be archived online upon completion of the conference call.

About RealNetworks

Building on a rich history of digital media expertise and innovation, RealNetworks has created a new generation of products that employ best-in-class artificial intelligence and machine learning to enhance and secure our daily lives. Real's portfolio includes SAFR, the world's premier computer vision platform for live video, Kontxt, an industry leading NLP (Natural Language Processing) platform for text and multi-media analysis, and leveraging its digital media expertise, a mobile games business focused on the large free-to-play segment. For information about all of our products, visit www.realnetworks.com.

About Continuing and Discontinued Operations and Non-GAAP Financial Measures

*This release refers to “continuing” and “discontinued” operations due to the completion of the sale of Napster, RealNetworks’ 84%-owned subsidiary, to MelodyVR Group PLC, which closed on December 30, 2020. Effective as of the August 25, 2020 announcement date, Napster has been treated as a discontinued operation for accounting and disclosure purposes; therefore, unless otherwise noted, results presented in this release relate to the continuing operations of RealNetworks, which exclude Napster.

To supplement RealNetworks' consolidated financial information presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted EBITDA and contribution margin by reportable segment, which management believes provide investors with useful information.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP net income (loss) from continuing operations to adjusted EBITDA and operating income (loss) by reportable segment to contribution margin by reportable segment.

The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the quarterly earnings materials. Please refer to Exhibit 99.2 (“Information Regarding Non-GAAP Financial Measures”) to the company's report on Form 8-K, which is being submitted today to the SEC.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to our current expectations regarding our future growth, profitability, and market position, our financial condition and liquidity, our strategic focus and initiatives, product plans, agreements with partners, and expectations and contingencies relating to the sale of Napster. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. These statements reflect our expectations as of today, and actual results may differ materially from the results predicted. Factors that could cause actual results for RealNetworks, on a consolidated basis, to differ from the results predicted include: our ability to realize operating efficiencies, growth and other benefits from the implementation of our growth initiatives and restructuring efforts; cash usage and conservation, and the pursuit of additional funding sources; successful monetization of our products and services; competitive risks, including the emergence or growth of competing technologies, products and services; potential outcomes and effects of claims and legal proceedings; risks associated with key customer or strategic relationships and business acquisitions; challenges caused by the COVID-19 pandemic; disruptions in the global financial markets, including changes in consumer spending and impacts to credit availability; and fluctuations in foreign currencies. More information about potential risk factors that could affect our business and financial results is included in RealNetworks' latest annual report on Form 10-K for year ended December 31, 2019 its quarterly reports on Form 10-Q and in other reports and documents filed by RealNetworks from time to time with the Securities and Exchange Commission. The preparation of our financial statements and forward-looking financial guidance requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, and revenues and expenses during the reported period. Actual results may differ materially from these estimates under different

assumptions or conditions. RealNetworks assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

For More Information:

Investor Relations for RealNetworks

Kimberly Orlando, Addo Investor Relations

310-829-5400

IR@realnetworks.com

RNWK-F

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	Quarter Ended December 31,				Year ended December 31,
	2020		2019		2020		2019
	(in thousands, except per share data)
Net revenue	$	17,601	$	17,311	$	68,062	$	65,802
Cost of revenue	4,036		4,204		16,465		17,226
Gross profit	13,565		13,107		51,597		48,576
Operating expenses:
Research and development	5,944		6,411		24,319		27,850
Sales and marketing	5,073		5,515		21,042		23,016
General and administrative	4,068		4,846		17,331		21,820
Fair value adjustments to contingent consideration liability	(8,400)		300		(8,600)		1,000
Restructuring and other charges	1,432		367		2,529		1,954
Total operating expenses	8,117		17,439		56,621		75,640
Operating income (loss)	5,448		(4,332)		(5,024)		(27,064)
Other income (expenses):
Interest expense	(8)		—		(20)		—
Interest income	7		9		38		98
Gain on equity and other investments, net	201		—		111		12,338
Other income (expenses), net	(227)		(95)		(164)		102
Total other income (expenses), net	(27)		(86)		(35)		12,538
Income (loss) from continuing operations before income taxes	5,421		(4,418)		(5,059)		(14,526)
Income tax expense (benefit)	(551)		187		55		702
Net income (loss) from continuing operations	5,972		(4,605)		(5,114)		(15,228)
Net income (loss) from discontinued operations, net of tax	2,260		(2,158)		(206)		(6,030)
Net income (loss)	8,232		(6,763)		(5,320)		(21,258)
Net loss attributable to noncontrolling interests of continuing operations	(88)		(57)		(284)		(163)
Net income (loss) attributable to noncontrolling interests of discontinued operations	180		(342)		(184)		(1,094)
Net income (loss) attributable to RealNetworks	$	8,140	$	(6,364)	$	(4,852)	$	(20,001)
Net income (loss) from continuing operations attributable to RealNetworks	$	6,060	$	(4,548)	$	(4,830)	$	(15,065)
Net income (loss) from discontinued operations attributable to RealNetworks	2,080		(1,816)		(22)		(4,936)
Net income (loss) attributable to RealNetworks	$	8,140	$	(6,364)	$	(4,852)	$	(20,001)
Net income (loss) per share attributable to RealNetworks- Basic:
Continuing operations	$	0.16	$	(0.12)	$	(0.13)	$	(0.40)
Discontinued operations	0.05		(0.05)		—		(0.13)
Net income (loss) per share attributable to RealNetworks- Basic	$	0.21	$	(0.17)	$	(0.13)	$	(0.53)
Net income (loss) per share attributable to RealNetworks- Diluted:
Continuing operations	$	0.16	$	(0.12)	$	(0.13)	$	(0.40)
Discontinued operations	0.05		(0.05)		—		(0.13)
Net income (loss) per share attributable to RealNetworks- Diluted	$	0.21	$	(0.17)	$	(0.13)	$	(0.53)
Shares used to compute basic net income (loss) per share	38,345		38,142		38,272		37,944
Shares used to compute diluted net income (loss) per share	38,489		38,142		38,272		37,944

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

	December 31, 2020		December 31, 2019
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	23,940	$	8,472
Trade accounts receivable, net	10,229		12,767
Deferred costs, current portion	196		537
Investments	9,965		—
Prepaid expenses and other current assets	3,480		4,428
Current assets of discontinued operations	—		28,376
Total current assets	47,810		54,580
Equipment and software	30,726		31,699
Leasehold improvements	2,776		3,071
Total equipment, software, and leasehold improvements	33,502		34,770
Less accumulated depreciation and amortization	31,631		32,350
Net equipment, software, and leasehold improvements	1,871		2,420
Operating lease assets	7,937		10,198
Restricted cash equivalents	1,630		4,880
Other assets	4,150		1,808
Deferred costs, non-current portion	74		388
Deferred tax assets, net	909		761
Goodwill	17,375		16,908
Non-current assets of discontinued operations	—		67,811
Total assets	$	81,756	$	159,754
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,750	$	4,042
Accrued and other current liabilities	17,850		17,495
Deferred revenue, current portion	2,122		2,003
Current liabilities of discontinued operations	—		72,641
Total current liabilities	22,722		96,181
Deferred revenue, non-current portion	45		96
Deferred tax liabilities, net	1,129		1,076
Long-term lease liabilities	6,837		8,234
Long-term debt	2,895		3,900
Other long-term liabilities	2,241		10,151
Non-current liabilities of discontinued operations	—		1,843
Total liabilities	35,869		121,481
Total shareholders' equity	46,149		38,775
Noncontrolling interests	(262)		(502)
Total equity	45,887		38,273
Total liabilities and equity	$	81,756	$	159,754

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Year ended December 31,
	2020		2019
	(in thousands)
Cash flows from operating activities:
Net loss from continuing operations	$	(5,114)	$	(15,228)
Adjustment to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	944		1,195
Stock-based compensation	1,420		2,881
Gain on equity and other investments, net	(111)		(12,338)
Loss on impairment of operating lease asset	1,055		—
Deferred income taxes, net	(191)		(29)
Foreign currency (gain) loss	330		7
Fair value adjustments to contingent consideration liability	(8,600)		1,000
Net change in certain operating assets and liabilities	2,184		1,197
Net cash used in operating activities - continuing operations	(8,083)		(21,315)
Net cash used in operating activities - discontinued operations	(2,555)		(4,055)
Net cash used in operating activities	(10,638)		(25,370)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(408)		(949)
Proceeds from sales and maturities of short-term investments	—		24
Acquisitions, net of cash acquired	—		12,249
Net cash provided by (used in) investing activities - continuing operations	(408)		11,324
Net cash used in investing activities - discontinued operations	(2,160)		(243)
Net cash provided by (used in) investing activities	(2,568)		11,081
Cash flows from financing activities:
Proceeds from issuance of common stock	—		199
Proceeds from issuance of preferred stock	10,000		—
Tax payments from shares withheld upon vesting of restricted stock	(26)		(309)
Proceeds from notes payable and long-term debt	2,876		3,900
Repayments of notes payable and long-term debt	(3,922)		—
Payment of financing fees	—		(622)
Other financing activities	2,106		900
Net cash provided by financing activities - continuing operations	11,034		4,068
Net cash provided by (used in) financing activities - discontinued operations	4,945		(4,691)
Net cash provided by (used in) financing activities	15,979		(623)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	618		(100)
Net increase (decrease) in cash, cash equivalents and restricted cash	3,391		(15,012)
Cash, cash equivalents, and restricted cash, beginning of year	22,179		37,191
Cash, cash equivalents, and restricted cash, end of year	25,570		22,179
Less: Cash, cash equivalent and restricted cash from discontinued operations	—		8,827
Cash and cash equivalents from continuing operations, end of year	$	25,570	$	13,352

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

	2020										2019
	YTD		Q4		Q3		Q2		Q1		YTD		Q4		Q3		Q2		Q1
	(in thousands)
Net Revenue by Segment
Consumer Media (A)	$	12,581	$	3,384	$	2,543	$	3,159	$	3,495	$	13,170	$	4,432	$	3,632	$	2,620	$	2,486
Mobile Services (B)	26,889		7,338		6,400		6,461		6,690		27,143		6,312		6,895		6,997		6,939
Games (C)	28,592		6,879		7,611		7,465		6,637		25,489		6,567		7,164		6,048		5,710
Total net revenue	$	68,062	$	17,601	$	16,554	$	17,085	$	16,822	$	65,802	$	17,311	$	17,691	$	15,665	$	15,135
Net Revenue by Product
Consumer Media
- Software License (D)	$	5,957	$	1,593	$	642	$	1,702	$	2,020	$	6,522	$	2,856	$	1,987	$	944	$	735
- Subscription Services (E)	3,586		867		892		898		929		4,148		992		1,028		1,040		1,088
- Product Sales (F)	1,301		625		193		261		222		825		193		207		206		219
- Advertising & Other (G)	1,737		299		816		298		324		1,675		391		410		430		444
Mobile Services
- Software License (H)	5,110		2,376		931		972		831		3,101		657		888		957		599
- Subscription Services (I)	21,779		4,962		5,469		5,489		5,859		24,042		5,655		6,007		6,040		6,340
Games
- Subscription Services (J)	10,794		2,589		2,705		2,730		2,770		12,121		3,007		3,056		3,073		2,985
- Product Sales (K)	13,879		3,315		3,874		3,712		2,978		9,823		2,580		3,078		2,177		1,988
- Advertising & Other (L)	3,919		975		1,032		1,023		889		3,545		980		1,030		798		737
Total net revenue	$	68,062	$	17,601	$	16,554	$	17,085	$	16,822	$	65,802	$	17,311	$	17,691	$	15,665	$	15,135
Net Revenue by Geography
United States	$	43,704	$	10,893	$	11,855	$	10,742	$	10,214	$	39,724	$	10,153	$	10,588	$	9,480	$	9,503
Rest of world	24,358		6,708		4,699		6,343		6,608		26,078		7,158		7,103		6,185		5,632
Total net revenue	$	68,062	$	17,601	$	16,554	$	17,085	$	16,822	$	65,802	$	17,311	$	17,691	$	15,665	$	15,135
Net Revenue by Segment
(A) The Consumer Media segment primarily includes revenue from the licensing of our portfolio of video codec technologies. Also included is RealPlayer and related products, such as the distribution of third-party software products, advertising on RealPlayer websites, sales of RealPlayer Plus software to consumers, and consumer subscriptions such as RealPlayer Plus and SuperPass.
(B) The Mobile Services segment primarily includes revenue from SaaS services and sales of professional services provided to mobile carriers.
(C) The Games segment primarily includes revenue from player purchases of in-game virtual goods within our free-to-play games, mobile and PC games, online games subscription services, and advertising on games sites and social network sites.
Net Revenue by Product
(D) Software licensing revenue within Consumer Media includes revenues from licenses of our video codec technologies.
(E) Subscriptions revenue within Consumer Media includes revenue from subscriptions such as our RealPlayer Plus and SuperPass offerings.
(F) Product sales within Consumer Media includes sales of RealPlayer Plus software to consumers.
(G) Advertising & other revenue within Consumer Media includes distribution of third-party software products and advertising on RealPlayer websites.
(H) Software license revenue within Mobile Services includes revenue from our integrated RealTimes platform and our facial recognition platform, SAFR.
(I) Subscription services revenue within Mobile Services includes revenue from ringback tones and our messaging platform services, as well as from related professional services provided to mobile carriers.
(J) Subscription services revenue within Games includes revenue from online games subscriptions.
(K) Product sales revenue within Games includes revenue from player purchases of in-game virtual goods, retail and wholesale games-related revenue, sales of mobile games.
(L) Advertising & other revenue within Games includes advertising on games sites and social network sites.

RealNetworks, Inc. and Subsidiaries

Segment Results of Operations and Reconciliation to non-GAAP Contribution Margin

(Unaudited)

	2020						2019			2020			2019
	Q4			Q3			Q4			YTD			YTD
	(in thousands)
Consumer Media
Net revenue	$	3,384		$	2,543		$	4,432		$	12,581		$	13,170
Cost of revenue	550			593			690			2,273			3,031
Gross profit	2,834			1,950			3,742			10,308			10,139
Gross margin	84		%	77		%	84		%	82		%	77		%
Operating expenses	2,135			2,092			2,498			8,889			11,186
Operating income (loss), a GAAP measure	$	699		$	(142)		$	1,244		$	1,419		$	(1,047)
Depreciation and amortization	17			17			34			62			178
Contribution margin, a non-GAAP measure	$	716		$	(125)		$	1,278		$	1,481		$	(869)
Mobile Services
Net revenue	$	7,338		$	6,400		$	6,312		$	26,889		$	27,143
Cost of revenue	1,736			1,511			1,866			6,725			7,500
Gross profit	5,602			4,889			4,446			20,164			19,643
Gross margin	76		%	76		%	70		%	75		%	72		%
Operating expenses	5,940			5,577			7,198			24,787			29,340
Operating income (loss), a GAAP measure	$	(338)		$	(688)		$	(2,752)		$	(4,623)		$	(9,697)
Depreciation and amortization	130			88			100			418			518
Contribution margin, a non-GAAP measure	$	(208)		$	(600)		$	(2,652)		$	(4,205)		$	(9,179)
Games
Net revenue	$	6,879		$	7,611		$	6,567		$	28,592		$	25,489
Cost of revenue	1,744			1,955			1,716			7,451			6,975
Gross profit	5,135			5,656			4,851			21,141			18,514
Gross margin	75		%	74		%	74		%	74		%	73		%
Operating expenses	4,885			5,152			4,744			19,936			20,220
Operating income (loss), a GAAP measure	$	250		$	504		$	107		$	1,205		$	(1,706)
Acquisitions related intangible asset amortization	—			—			—			—			27
Depreciation and amortization	72			71			85			347			341
Contribution margin, a non-GAAP measure	$	322		$	575		$	192		$	1,552		$	(1,338)
Corporate
Cost of revenue	$	6		$	3		$	(68)		$	16		$	(280)
Gross profit	(6)			(3)			68			(16)			280
Gross margin	N/A			N/A			N/A			N/A			N/A
Operating expenses	(4,843)			2,521			2,999			3,009			14,894
Operating income (loss), a GAAP measure	$	4,837		$	(2,524)		$	(2,931)		$	(3,025)		$	(14,614)
Other expense, net	(227)			(104)			(95)			(164)			102
Foreign currency loss	305			143			157			330			7
Depreciation and amortization	28			28			33			117			131
Fair value adjustments to contingent consideration liability	(8,400)			—			300			(8,600)			1,000
Restructuring and other charges	1,432			307			367			2,529			1,954
Stock-based compensation	327			390			461			1,420			2,881
Contribution margin, a non-GAAP measure	$	(1,698)		$	(1,760)		$	(1,708)		$	(7,393)		$	(8,539)

RealNetworks, Inc. and Subsidiaries

Reconciliation of Net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure

(Unaudited)

	2020				2019		2020		2019
	Q4		Q3		Q4		YTD		YTD
			(in thousands)
Reconciliation of GAAP Net income (loss) from continuing operations to adjusted EBITDA:
Net income (loss) from continuing operations	$	5,972	$	(3,308)	$	(4,605)	$	(5,114)	$	(15,228)
Income tax expense (benefit)	(551)		316		187		55		702
Interest expense	8		7		—		20		—
Interest income	(7)		(6)		(9)		(38)		(98)
(Gain) loss on equity and other investments, net	(201)		37		—		(111)		(12,338)
Foreign currency loss	305		143		157		330		7
Acquisitions related intangible asset amortization	—		—		—		—		27
Depreciation and amortization	247		204		252		944		1,168
Fair value adjustments to contingent consideration liability	(8,400)		—		300		(8,600)		1,000
Restructuring and other charges	1,432		307		367		2,529		1,954
Stock-based compensation	327		390		461		1,420		2,881
Adjusted EBITDA, a non-GAAP measure	$	(868)	$	(1,910)	$	(2,890)	$	(8,565)	$	(19,925)

EX-99.2

Exhibit 99.2

About Non-GAAP Financial Measures

To supplement RealNetworks’ condensed consolidated financial statements presented in accordance with GAAP, the Company presents investors with certain non-GAAP financial measures, including adjusted EBITDA and contribution margin by reportable segment. Contribution margin by reportable segment consists of operating income (loss) and includes other income (expense) net, but excludes the impact of the following: depreciation and amortization; acquisitions related intangible asset amortization; fair value adjustments to contingent consideration liability; stock-based compensation; restructuring and other charges; and foreign currency (gain) loss. Adjusted EBITDA consists of GAAP net income (loss) including noncontrolling interests and excludes the impact of the following: interest income and interest expense; income tax expense; (gain) loss on equity and other investments, net; foreign currency (gain) loss; acquisitions related intangible asset amortization; depreciation and amortization; fair value adjustments to contingent consideration liability; restructuring and other charges; and stock-based compensation.

RealNetworks believes that the presentation of adjusted EBITDA and contribution margin by reportable segment provide important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with RealNetworks’ past financial reports, and also facilitates comparisons with other companies in the Company’s industry, many of which use similar non-GAAP financial measures to supplement their GAAP results. Management uses these non-GAAP measures when evaluating operating performance because the inclusion or exclusion of the items described above provides additional useful measures of the Company’s operating results and facilitates comparisons of the Company’s core operating performance against prior periods and its business model objectives. The Company has chosen to provide this information to investors in order to enable them to perform additional analyses of past, present and future operating performance, to enable them to compare RealNetworks with other companies, and as a supplemental means to evaluate the Company’s ongoing operations. Externally, the Company believes that adjusted EBITDA is useful to investors in their assessment of RealNetworks’ operating performance and the valuation of the Company.

Internally, adjusted EBITDA and contribution margin by reportable segment are significant measures used by management for purposes of:

•supplementing the financial results and forecasts reported to the Company’s board of directors;

•evaluating the operating performance of RealNetworks, which includes direct and incrementally controllable revenue and costs of operations but excludes items considered by management to be non-cash or non-operating such as interest income and interest expense, stock-based compensation, tax expense, depreciation and amortization, fair value adjustments to contingent consideration liability, impairment of deferred costs and long-lived assets, (gain) loss on equity and other investments, net, foreign currency (gain) loss, and other items that are not within management’s control;

•managing and comparing performance internally across the Company’s businesses and externally against the Company’s peers;

•establishing internal operating budgets; and

•evaluating and valuing potential acquisition candidates.

Adjusted EBITDA and contribution margin by reportable segment are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of RealNetworks’ business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of RealNetworks’ results as reported under GAAP. The Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from its non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. Some of the limitations in relying on the Company’s non-GAAP financial measures are that adjusted EBITDA and contribution margin by reportable segment are measures that the Company has defined for internal and investor purposes and are not in accordance with GAAP. A further limitation associated with these measures is that they do not include all costs and income that impact the Company’s net income (loss) or operating income (loss) at the segment level. The Company compensates for these limitations by prominently disclosing GAAP net income (loss) and operating income (loss) by reportable segment, which the Company believes are the most directly comparable GAAP measures, and providing investors with reconciliations from GAAP net income (loss) including noncontrolling interests to adjusted EBITDA and operating income (loss) to contribution margin by reportable segment.

RealNetworks has included reconciliations of GAAP net income (loss) including noncontrolling interests to adjusted EBITDA and GAAP operating income (loss) by reportable segment to contribution margin by reportable segment for the relevant periods in the financial tables of its earnings press release, which is included as Exhibit 99.1 to this report.